Maintain BUY on Press Metal on a lower fair value of RM2.63/sharebased on an unchanged target PE of 13x, factoring a more conservative pricingassumption on an evolving global macro situation. But, we remain bullish with Press Metal's transformational growth prospects as the largest integrated aluminium producer in the ASEAN region with an expanded capacity of 360,000.

Our positive outlook is largely driven by: (i) Press Metal'sstatus as the larger of only two existing aluminium smelters serving thegrowing ASEAN market; (ii) The group remains the only active direct play on theroll-out of Sarawak's Bakun dam, widely viewed as among the lowest-costhydro-plants in the region; (iii) The long-term supply of power from Bakunenhances its cost competitiveness in weathering any protracted weaknesses inthe global aluminium market.

Core earnings rose 46% YoY, boosted by a strong 4QFY11 (+34%QoQ) on a marked improvement in the output at its Mukah Smelter (utilization:~90%) with maiden power supply from Bakun in October that offset a weakening inthe global aluminium industry.  

Phase 2 of Press Metal's plant expansion in Samalaju is stillon track to complete by end-3Q12. It is mulling a few options to fund thebalance of funding requirements for Phase 2 (~RM500mil-RM1bil: (i) New debt;and (ii) Forward sales to trading houses/financial institutions.

As supply of power from Bakun to its existing 120,000-tonneMukah plant had finally arrived last October, Press Metal has sinceaggressively ramped-up its capacity to ~90% from 50%-60% prior to that.Accounting for half of sales, the group has successfully penetrated the keyAsian markets such as Japan, Taiwan and South Korea. While aluminium pricesremain tepid near-term, prospects should pick-up from 2QFY12 onwards on (i)Rising demand in Asia; (ii) Global production cut-backs; and (iii) Re-stockingactivities post a weak 4Q11-period.

Notably, the immediate focus of Press Metal is on import substitutionwithin a fast-growing ASEAN market ' with the entire Phase 2 of its expansionprogram (240,000 tonnes) scheduled to be in full-flow by end-2013. Indeed, itscompletion should prod renewed interest from strategic investors, includingJapan's Sumitomo that already has a 20% stake in its Mukah plant.   

The stock offers attractive forward PE valuations of 6x-9x onFD FY12-14F EPS vs EPS CAGR of 23%. Near-term event-driven catalysts would be:(i) Successful completion of its new smelter by end-3QFY11; and (ii)crystallization of a formal PPA with SEB. 

Source: AmeSecurities